How to Beat Inflation – 6 Strategies for Growing and Preserving Wealth

by Miranda Marquit

With talk of a possible double-dip recession becoming more common, inflation may not be on your radar. However, over the long term, prices do tend to go up — and the purchasing power of your dollar tends to go down. It’s the way of things with a fiat currency: Over time, your purchasing power is going to decline, and you’ll need more dollars to pay for the same product or service. Just take a look at this historic inflation calculator for an example of how the purchasing power of the dollar has eroded over time. What you need are some core strategies to beat inflation and protect the purchasing power of your wealth.

How to Beat Inflation

how to beat inflation

The cost of goods continues to rise.

If you are wondering how you can offset the inevitability of inflation, here are 6 strategies you might employ:


This is one of the simplest — and possibly the safest — strategies for offsetting inflation. Treasury Inflation Protected Securities (TIPS) are special bonds that are periodically adjusted to keep pace with inflation. While you probably won’t earn a huge return, your money will be backed by the U.S. government, and your purchasing power will be preserved. I-bonds are another inflation protected Treasury investment that can help you beat inflation. However, it is important to realize that, like all bonds, the possibility of default is still there.

2. Index Funds

Over time, past performance indicates that the stock market does not lose. (Although there is a first time for everything, and you are still at risk.) Indeed, over the long haul, the overall stock market offers inflation-beating returns. However, individual stock-picking does not provide the same potential for success. You can advantage of the power of the entire stock market with index funds and ETFs that follow the market. Fees are low, and if you wait long enough the returns should help you outpace inflation.

3. Commodities

If you can stomach the volatility and the risk many associate with commodities, you might be able to stay ahead of inflation. People will always need commodities, so, due to that demand, commodities are inflation sensitive. Investing in them can put you ahead in the long run. You can limit some of your risk with the help of commodity ETFs.

4. Start a Business

If you are providing products and services, you can keep up with inflation by adjusting your prices as necessary. The downside, though, is that customers may not be happy with your rising prices. However, with slight adjustments when it comes time to renegotiate, it should be possible to create a revenue stream that paces inflation. This can be a boon in a world where wages from “the man” are less likely to keep up with inflation. With a little help from the Internet, you can gain the advantages of working from home, while possibly staying ahead of inflation.

5. Lock in Higher Interest Rates on Cash Accounts

While this is not something that is likely to happen anytime really soon, it is still worth keeping an eye out for higher interest rates. One of the key reasons for CD laddering is so that you can take advantage of higher rates when they come around. Keep watch over the interest trends, and when you can, lock in higher interest rates on your cash.

6. Lock in Lower Fixed Rates on Debt

If you have debt, now is the time to pay it down. You can reduce the effects of inflation later by getting fixed rates on mortgage loans and car loans. With rates as low as they are, you might consider refinancing. And, while you are about it, now is a good time to pay down high interest credit card debt, while more of your payment goes to principal.

What other ways can you think of to beat inflation?

Published or updated December 12, 2012.
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{ 5 comments… read them below or add one }

1 Vytas

Although this advice would not be good in other situations, I think it would be good in times of inflation and especially hyper-inflation.
Take loans. When inflation rises, money loses value and you will have to pay less. In times of hyper-inflation (some economists think it is coming) your loan would be wiped away as money would entirely lose value.
No more ideas at the moment.
Have a nice weekend.


2 Shaun

Great article. I’m personally using commodities and my own business to combat inflation. My biggest reservation is TIPS — I’m not sure I trust the government to report real inflation. Maybe I’m a little paranoid though. ๐Ÿ™‚

I’ve been planning on writing more about inflation at a gold website I run, and when I do, I’ll be sure to link back to this article.



3 K.C.

Beat inflation? How about get the most use out of your stuff. We use things until they are used up. We drive an automobile for 15 years or more before getting rid of it. We have a clothes washer that is still giving us good service after 27 years. We’ve had our “new” couch for 28 years and much of our other furniture for thirty-five years or more. Hey, you want to time travel to the 1970’s? Visit my place.


4 The Dude

KC. You miss what inflation is. This is not a discussion of saving costs or being efficient, it is about preservng wealth.


5 Chris

I read a great article on food (growing your own) as an investment asset. I agree with Shaun that government reported inflation (CPI here in Canada) is skewed and does not represent real life numbers. 6-7% by my calculations. Think outside of paper investment and look at how you can offset costs like food, utilities, housing, etc. Co-ops and sharing programs are starting to come about that also facilitate this. This may be a hippy-esqe response however still a most viable avenue. Oh yes, also hedge with gold and silver ๐Ÿ™‚


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